Chapter 6. Chile
Support to agriculture
Chile’s agricultural support creates limited distortions to agricultural markets, with almost no market price support provided to farmers. The support to farmers is one of the lowest amongst OECD countries at 2.6% of gross farm incomes (%PSE). Domestic prices are aligned with international prices. Support to farmers is mostly targeted to small-scale farmers and mainly based on input use, in particular support to fixed capital formation and the provision of services. Total public spending on agriculture increased by 1.4% from 2016 to 2017.
Main policy changes
The fundamental orientation of agricultural policy remained unchanged with a twin focus on productivity and the inclusion and development of smallholders and indigenous farmers. Policy measures continue to target at a number of areas: the expansion and more efficient irrigation systems; maintaining Chile’s strong sanitary and phyto-sanitary conditions; enhancing policy instruments that promote the development of smallholders and indigenous farmers and, in particular, young farmers; promoting innovation; and improving the sustainability of resources, in particular degraded soils.
In 2017, the National Institute for Agricultural Development (INDAP) started implementing the programme called “Yo Joven & Rural” (Me, Young and Rural); this programme supports rural youth (18-35 year-olds) involved in agricultural activities, by providing subsidies, financing, capacity building, training and the development of networks.
Several policy initiatives on agricultural sustainability and climate change were developed in 2017. The Minister of Agriculture through its Office of Agricultural Policies and Studies (ODEPA) together with other public institutions, and in consultation with key stakeholders, created the Protocol of Sustainable Agriculture, which has been implemented since its creation in 2015. The protocol is a voluntary scheme that identifies ten principles of sustainable agriculture and serves as the basis for the development of Sustainable Production Agreements (APL-S) in the agricultural subsectors. In 2017, the APL-S for the walnuts sector was developed and discussed with the private sector. Additionally, an APL-S proposal for the rice sector was drafted. Furthermore, in order to ensure the inclusion of family farming in the APL-S, a capacity building plan was created and started to be implemented in 2018.
A National Committee for the Prevention and Reduction of Food Losses and Waste was created with the participation of public institutions, civil society, the private sector and academia. The Agenda for Sustainable Development of the Chilean dairy sector was prepared through public-private coordination. This agenda provides a roadmap for the next four years, which contains strategic objectives, actions and indicators to improve the sustainability of the sector, aligned with the UN Sustainable Development Goals (SDGs) and with the Dairy Sustainability Framework (DSF) of the International Dairy Federation (IDF).
In order to plan investments in irrigation considering sustainable water use, the National Irrigation Committee (CNR), with the participation of public and private stakeholders, completed 23 irrigation management plans in the 15 regions of the country. In 2017, the Ministerial Technical Committee on Climate Change (CTICC) was created through Decree 360, 2017. This committee aims to address the challenges facing Chilean agriculture due to high vulnerability from weather variability.
Chile signed a Free Trade Agreement with Indonesia in 2017. The country has also deepened the existing agreements and is currently negotiating the modernisation agreement with the European Union, with an agenda that goes beyond the liberalisation of tariffs, with issues like intellectual property rights and environmental provisions. In March 2018 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) was signed in Santiago, Chile by 11 countries including Chile.
Assessment and recommendations
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Agricultural policies in Chile involve few market distortions. PSE averaged 2.6% of gross farm receipts in 2015-17 and general services (GSSE) accounted for 51% of total support to the sector.
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Total budgetary outlays to the sector increased by 1.4% between 2016 and 2017. Direct payments are mostly targeted at small-scale agriculture and aim to improve productivity, competiveness, recovery of degraded soils, and on-farm irrigation systems. Most of the expenditures on general services are allocated on irrigation infrastructure inspection and control, and agricultural knowledge and innovation systems.
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Approaches for the sector continue to support small-scale agriculture and indigenous people development as well as to protect and improve natural resources, sustainable productivity, infrastructure, access to markets and competitiveness. Around 70% of direct payments go to small-scale agriculture and half of the spending on the sector is on general services, a share that is four times the OECD average.
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While payments to farmers are targeted towards small-scale agriculture and indigenous farmers, careful attention should be paid to assessing their effectiveness. Impact assessments should be carried out systematically.
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As more projects and programmes related to agriculture have been created that are not within the auspices of the Ministry of Agriculture, the need for co-ordination across ministries and agencies becomes progressively more important, as well as strong systems of programme evaluation.
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While Chile’s agricultural sector remains responsible for a substantial share of the country’s overall GHG emissions, no sector-specific target or plan has been set that could help achieving its emission reduction commitment under the Paris Agreement on Climate Change.
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Support to farmers as measured by the %PSE declined from 7.6% in 1995-97 to 2.6% in 2015-17. This support is amongst the lowest in the OECD area and it is mostly delivered through direct payment, mainly to smallholders. Over time Chile has reduced the potentially most distorting support (based on output and variable input use – without input constraints). Most of the support to farmers has been linked to input subsidies, in particular to fixed capital formation input use. Producer prices are practically aligned with world prices (Figure 6.1), and border price changes are directly transmitted to domestic producer prices (Figure 6.2). Expenditures for general services were equivalent to 4% of the agricultural value added in 2015-17, a higher figure than the 1.5% observed in the 1995-97 period. Total agricultural support was 0.3% of GDP in 2015-17. Support to General services (GSSE) accounted for about half of the total support (TSE) in 2015-17. Transfers to single commodities are limited to sugar and maize and represented 2.4% of commodity gross farm receipts in 2015-17 (Figure 6.3).
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database). http://dx.doi.org/10.1787/agr-pcse-data-en.
Contextual information
Chile is an upper middle-income country with a GDP per capita of USD 22 727. The country had a low unemployment rate of 6.6% in 2017 (OECD, 2018). Chile is also a relatively open economy, with trade representing 24% of its GDP. Agriculture contributed with 4.3% to GDP, but accounted for 9.4% of employment, reflecting the duality of its structure, where small-scale labour intensive farms coexist alongside a large-scale commercial farm sector.
With a GDP per capita that has tripled over the past 20 years the well-being of its people has improved and overall poverty was reduced. Chile is a net exporter of agro-food products (excluding fish and forestry) with a surplus of USD 6 billion in 2016. Chile’s agricultural and agro-food sector has been successful in adding value to the production of primary commodities, and processed products such as wine and fruits. In 2016, 35% of exports were in processed products for final consumption and 9% were processed products for further industrial processing in other countries. Agro-food imports are mostly processed products, where 54% are for consumption and 27% for further processing in industry.
Source: OECD statistical databases.
The agricultural sector, in conjunction with related downstream activities, has played a key role in Chile’s economic success, both benefiting from stability and reforms, and making an important contribution via rapid output and exports growth. Productivity growth has been central to Chile’s agriculture. With a relatively stable use of primary and intermediate inputs into production, growth in output has been achieved by significant improvements in total factor productivity (TFP). TFP growth was about the same as the World average at 2.2% per year over the period 2005 to 2014.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.
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Chile |
International comparison |
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|---|---|---|---|---|
|
|
1991-2000 |
2005-2014 |
1991-2000 |
2005-2014 |
|
|
|
|
World |
|
|
TFP annual growth rate (%) |
1.66% |
2.20% |
1.60% |
1.63% |
|
|
|
OECD average |
||
|
Environmental indicators |
1995 |
2016* |
1995 |
2016* |
|
Nitrogen balance, kg/ha |
.. |
.. |
33 |
30 |
|
Phosphorus balance, kg/ha |
.. |
.. |
3.7 |
2.4 |
|
Agriculture share of total energy use (%) |
.. |
.. |
1.8 |
1.9 |
|
Agriculture share of GHG emissions (%) |
22 |
12 |
8.5 |
8.5 |
|
Share of irrigated land in AA (%) |
7.0 |
7.0 |
- |
- |
|
Share of agriculture in water abstractions (%) |
.. |
.. |
45 |
43 |
|
Water stress indicator |
.. |
.. |
10 |
10 |
|
Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data. |
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Description of policy developments
Main policy instruments
The fundamental orientation of agricultural policy remained unchanged with a twin focus on productivity and the inclusion and development of smallholders and indigenous farmers. Policy measures continue to target at a number of areas: the expansion and more efficient irrigation systems; maintaining Chile’s strong sanitary and phyto-sanitary conditions; enhancing policy instruments that promote the development of smallholders and indigenous farmers and, in particular, young farmers; promoting innovation; and improving the sustainability of resources, in particular degraded soils.
Chile’s commitments on emissions related to agriculture and forestry under COP21 (nationally determined contribution-NDCs) that relate to the forestry and agricultural sectors are under the auspices of the National Forestry Corporation (CONAF). Two commitments are related to forests: first, the sustainable management and recovery of 100 000 hectares of forest, mainly native, which will absorb the equivalent to 600 000 tonnes of CO2 per year, starting in 2030. Second, reforesting 100 000 hectares, mostly with native species, which will represent removals equivalent to 900 000-1 200 000 tonnes of CO2 per year, starting in 2030. Those commitments are conditional on legislative approval. While no specific commitment is made related to agricultural emissions, the sector’s emissions are included in the overall pledge to reduce the emission intensity per unit of GDP by 30% below their 2007 levels by 2030.
Domestic policy developments in 2017-18
The National Institute for Agricultural Development (INDAP), started implementing a nationwide program called Yo Joven & Rural (Me, Young and Rural). This programme, born under the request expressed by young farmers (18-35 years-old) from all across the country, aims to foster youth entrepreneurship in the agricultural sector by providing them with subsidies for fixed capital formation, training, financing and capacity building. It has also sought the development of networks such as La red Nacional de Jóvenes Rurales (The Rural Youth National Network) currently composed of more than 2 100 members, and the establishment of the National and Regional Rural Youth Boards, a Public-Private Dialogue Commission that seeks to promote dialogue and participation between young farmers and INDAP. In 2017, INDAP as a whole worked with 13 000 young recipients, while the special components of the “Yo Joven & Rural” programme, worked with around 2 000”.
Several policy initiatives on agricultural sustainability and climate change were developed in 2017. The Minister of Agriculture through its Office of Agricultural Policies and Studies (ODEPA) together with other public institutions, and in consultation with key stakeholders, created the Protocol of Sustainable Agriculture, which has been implemented since its creation in 2015.
The protocol is a voluntary scheme that identifies ten principles of sustainable agriculture and serves as the basis for the development of Sustainable Production Agreements (APL-S) in the agricultural subsectors. The ten principles are: 1) better monitoring and use of water resources; 2) respect for human rights and working conditions; 3) more efficient waste management; 4) better management and application of agrochemicals; 5) improved management of food safety and traceability; 6) better relationship with local communities; 7) better management of biodiversity and ecosystem services; 8) improved energy management; 9) better soil management and conservation, and 10) better animal health and welfare. In 2017, the APL-S for the walnuts sector was developed and discussed with the private sector. Additionally, an APL-S proposal for the rice sector was drafted. Furthermore, in order to ensure the inclusion of family farming in the APL-S, a capacity building plan was created and started to be implemented in 2018.
A National Committee for the Prevention and Reduction of Food Losses and Waste was created with the participation of public institutions, civil society, the private sector and academia. During the first meeting of this committee, the roadmap for 2018-19 was defined, which focuses on three main areas: 1) research, technologies and knowledge; 2) awareness and communication; and 3) governance.
The Agenda for Sustainable Development of the Chilean dairy sector was prepared through public-private coordination. This agenda provides a roadmap for the next four years, which contains strategic objectives, actions and indicators to improve the sustainability of the sector, aligned with the UN Sustainable Development Goals (SDGs) and with the Dairy Sustainability Framework (DSF) of the International Dairy Federation (IDF).
In 2017, the Ministerial Technical Committee on Climate Change (CTICC) was created through Decree 360, 2017. This committee aims to address the challenges facing Chilean agriculture due to high vulnerability from weather variability.
In order to plan investments in irrigation considering sustainable water use, the National Irrigation Committee (CNR) with the participation of public and private stakeholders, completed 23 irrigation management plans in the 15 regions of the country. Based on these plans, the needs in each territory were identified and served as a guide to focus CNR investments on studies, programmes and projects, nationwide.
Trade policy developments in 2017-18
Chile has signed 21 FTAs, the latest with Indonesia in 2017. Chile has not only increased the global coverage of agreements, but has also has deepened the existing agreements. For example, Chile is currently negotiating the modernisation of the agreement with the European Union, with an agenda that goes beyond the liberalisation of tariffs, with issues like intellectual property rights and environmental provisions. In March 2018 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) was signed in Santiago, Chile by 11 countries, including Chile.
References
OECD (2018), OECD Statistics (database), http://stats.oecd.org/.
WDI (2018), World Development Indicators, World Bank Group, http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators.
MINAGRI (2018), “Annual country report on agricultural policies of Chile”, Government report prepared for the OECD, Santiago, Chile.